Invest in Real Estate with Bad Credit

Last updated on December 11th, 2023 at 07:53 pm

If you are looking to invest in real estate with bad credit, you may find several challenges await you. From unfavorable loans to just being told flat out “no”, being a successful real estate investor even with great credit can be tough. The good news is there are several options for you to purchase real estate or invest in real estate. The purchase of property can be either direct or indirect. Each of these has varying amounts of risk.  

Here are some of the investment methods and financing options we will cover. 

  1. Investing in REITs 
  2. Invest using Crowd Funding Platforms 
  3. Look into Seller Financing Options 
  4. Lease to Own 
  5. Loan Options, from traditional financing to Peer lending 
  6. Finding and Building partnerships 
  7. Renting a room or house you already own 
  8. Trading Goods
  9. Virtual Real Estate Options

Finally, we’ll also have a look at developing an investment plan and a few extra suggestions to repair your credit.

Investing in REITs 

REIT’s stand for Real Estate Investment Trusts. It refers to a company or trust that owns a group of real estate properties for the purpose of generating income. It pools the money from investors into a fund that is used to purchase and finance real estate transactions.  

Depending on the fund, the properties may be industrial, commercial, or residential. There are some REITs that are a blend of all types of properties.  The diversification of the properties, their values, purchase methodology and how they are operated are all a part of the REIT.  

The good news for you as a prospective investor is these funds are available on most stock trading platforms, such as Robinhood, E*TRADE, and TD Ameritrade to name a few. Most of the platforms mentioned have either no fee or low fee trades, which is attractive to new investors. Of course, if you already have an investment platform that you use, feel free to use that.  

How to Get Started

To find these, simply search for REIT and you should get at least a few results. Many also have curated lists of REIT options that will get you started. Do your homework and look at the prospectus for each fund.  

Depending on the REIT you select and your trading platform, you can invest as little as $25 or $50. So, it is a low-cost way to dip your toes into Real Estate with relatively little risk 

Remember that past results do not guarantee future gains. Do not overinvest. It’s always advisable to diversify to protect your hard-earned money from losses and risk. However, your money is SIPC backed as you are investing in securities on a traditional stock market. Still, you could lose your investment depending on the failure – which is the same as a traditional stock. 

Aerial shot of real estate neighborhood
Crowd Funding platforms such as Fundrise tend to focus on neighborhoods which are developed and financed together.

Crowd Funding Platforms 

Part of the diversification strategy we talked through in REITs could be to venture into a Crowdfunding Platform that is dedicated to real estate. Investing in real estate in this way is a little more direct, with no credit check required.  

It is similar to REIT in the sense that a company speculates and buys properties (again residential, commercial and industrial zoned) then manages the property. The company behind the platform uses the funds from investors to make the purchases and run the properties.  

The advantage of a crowdfunding platform is the returns a typically a little higher since there is no fund management fee, and there is no stock to trade. However, there is no SIPC backing with a lot of crowdfunding platforms.  

As with REITs you can invest any amount that you feel comfortable with and build up from there. You’ll be able to invest in properties more directly, and in some cases see the actual property you are investing in, which is a cool concept. With REITs you simply put your money into a fund and everything else is obfuscated.

Examples of Crowdfunding Platforms

Two popular choices are Landa and Fundrise, which each operate a slightly different model of investing. Both offer mobile apps, so it is easy to take real estate investing on the go. Fundrise pools your money and invests on your behalf depending on your criteria. Landa is more direct, and lets you invest in individual properties. Joining Fundrise from the link provided will also give you a free voucher that will help you get started. 

The risk is different depending on the platform. Fundrise protects you a little more from individual “bad” real estate decisions, but Landa lets you directly control your investment. Both present you with a great opportunity to invest in real estate with bad credit, because your credit is never checked.  

Seller Financing

Admittedly this is a rare option, but it wouldn’t hurt to ask if the current owner of a property you are interested in would be open to financing the purchase directly. In this way, it is easier to invest in real estate with bad credit, because your credit is not checked.  

As good as this sounds, there would be several hurdles you would have to overcome for this to be a reality. 

First, the owner has to be willing to finance you. This would mean they would hold a lien on the property until the loan is paid off, which they might not be willing to do since they are probably looking to sell and collect a lump sum.  

Next, you have to come up with agreeable finance terms. The term of the finance and payments, along with the effective interest rate, would have to be worked out. Be prepared to have an aggressive finance payment plan, as the owner would probably be looking to recover their financial investment in you relatively quickly.  

Then there are the closing costs – who is paying them? Are they rolled into the cost of the property? All of these items need to be documented into a sales contract and approved. You will probably require an attorney to handle the details, which is an additional expense.  

Still, if you are interested in a traditional property, you could always ask if seller financing is a possibility. It wouldn’t hurt to simply inquire, as you might be surprised on the answer!  

Lease to Own Option

Sometimes a property you might be interested in has a lease to own option. The rent might be a little higher than usual since part of the payment would go towards paying off the property. In this way, you can build your credit while working towards buying the property outright.  

An interesting twist to this would be to combine it with a sublease with tenants. In other words, you remain responsible for the rent to the landlords, but share the house with 1 or more tenants or “roommates” who pay you rent. You use that money towards the rent to the owner. Using this method, you can potentially pay down the balance of the property faster.  

Various Loan Options (Available to Investors with Bad Credit)

Traditional Loans

Traditional Loans or mortgages are always an option even if you have poor credit. But if you have bad credit, the terms of your loan will be a little tough. Interest rates will be higher, and many institutions are less willing to lend you a larger sum of money for an investment property. 

FHA and VA mortgage loans are typically only used for the purchase of a primary residence. A creative way to get around this would be to potentially look into a multi dwelling unit (such as a 2 or 4 family house) and occupy one of the units as your primary residence.  


If you currently are in a house and perhaps have built up some equity, you could look into a Home Equity Line of Credit or Loan (referred to as a HELOC) to finance the purchase of the investment property. The rates will vary, and the amount is completely dependent on the amount of equity you have built up in your home. (Equity would be the market value of your home minus what you currently owe.) 

A Home Equity Loan would be a flat amount that has a set payment schedule and amount as any other loan would have. A Home Equity Line of Credit would be a revolving line of credit that has a maximum amount you can draw from, with variable payments depending on how much you draw from the account.  

In either case, be aware that your credit score will have an impact on the terms you receive. Also, your home has to have enough equity built up to meet the often times strict terms for a home equity loan or line of credit.  

Peer to Peer Lending

Peer to peer lending platforms like Upstart, Prosper, and Lending Club that might be more willing to approve you than a traditional bank. I’ve talked about all three platforms in other articles such as what to do if you need money now, but you can also use them if you want money for an investment.  

Again, with bad credit investing in real estate isn’t impossible with a peer platform, but the financing terms will not be ideal. Be prepared to pay higher interest rates and a higher payment. Additionally, this would be an unsecured loan, whereas a traditional mortgage or home equity would be backed by the property. Unsecured loans have higher interest rates because of the risk built in without adequate collateral.  

The other downside to peer-to-peer financing option is the amount. You will be capped on the amount you can borrow, whereas a more traditional finance model could approve you up to 95% of the cost of the property or higher. For example, if the investment property was $100,000 you might get a mortgage for $90,000 (90%), but a peer lending platform might only approve you for a personal loan up to $35,000 (35%) leaving you a sizable gap.  

Friends and Family

Finally, you could try to secure a loan from friends and family to try to raise the money needed to invest in real estate. Friends and family are more likely to look past your bad credit history, or they may simply not know about it. You could pool the money together and potentially come up with a sizable amount.  

The important thing here is to let whomever you borrow from know this is a loan, and you intend to pay them back. Work out the terms ahead of time and have them in writing. And always work in good faith to pay them back ahead of yourself and your non-vital life expenses.  

If an investment goes bad, keep in mind this will put a strain on your relationship. The best thing is to be open and honest with them and keep the investors updated with what is going on.  

Find a partner or mentor to help on your journey
Finding the right partner who is willing to teach and learn with you will help you invest your funds wisely.

Finding and Building Partnerships

If you don’t have experience in real estate or cannot raise the funds needed to complete a purchase, you can try to find like-minded people to invest in together. Forming a partnership is a great way to meet other investors and gain valuable experience.  

If you can find a partner with previous real estate investment experience, they can also provide you with valuable insight and tips on how to be successful in real estate. You may learn how to avoid money traps, bad investments, and unprofitable properties. 

With this plan, you also aren’t responsible for the entire cost of the property. You can poll your money together with other investors to potentially buy a larger property that has more upside.  

Getting Started in a Partnership

As with any other partnership, you will want everything in writing. Be clear of the responsibilities of each partner, and make sure there are protections in place to protect your investment. It would also help to draft a document that outlines everything that is signed by each member and notarized.  

Finding the right partners can be tricky. There is no sure-fire way to ensure the partner you are engaging in is the right fit for you, your finances and your style. Always meet in person or at least over video conference before committing to anything and if something feels strange about the potential partnership, walk away.  

Finally, some people might be out to take advantage of you and your situation. Always do some research on potential partners and ask for references. You can find potential partners by talking and networking with real estate agents, or even seeking out real estate groups on social media. You can also look into local real estate groups or associations for membership and education.  

Roommates together in a living room
Renting space you already own is a low-cost way to get into real estate investing with bad credit. You don’t need to use credit at all!

Renting Space You Own

If you have a home already, you can dabble in real estate in a different way by renting a room or part of your house or apartment. In this way, you can collect a portion of your rent or mortgage cost and use the funds to pay down your own debts or offset the cost of your mortgage.  

Since you are leasing or renting a space you already “own” there is nothing to invest out of pocket.  

Of course, the downside is you are now sharing a space with someone else. You will need to interview them carefully and create an agreement that outlines costs, responsibilities and repercussions if the terms are broken. You will also want to determine whether the dates are open ended or if the lease expires after a certain time.  

Additionally, if you are already renting you will have to make sure taking on a tenant is allowed within your lease agreement. Most of the time this isn’t an issue, but your landlord might have concerns you would have to address.

Trading Goods

Perhaps you have valuable artwork, a nice car, a boat you received from your grandfather, or something else of intrinsic value. You could potentially approach the seller and offer a trade of some of your goods in addition to a cash payment in exchange for the investment property.  

A trick to making this work is to be observant of the seller and what they might be into. For example, you might notice while talking with them or visiting the property there are cars that are being restored. If you have a classic car, you can bring it up to them in conversation casually. If they are interested and you share a hobby, you could float the idea of a trade to them to bring down the amount of cash you might need to close the deal.  

Virtual Real Estate

If you are technical minded or are willing to be a little more unconventional you should also actively look to invest in virtual real estate, both in the metaverse and online in domain names and websites.  

Think about the internet and the websites you visit as property. By setting up a website you are essentially building virtual property that has value. As the website becomes more developed and increases in popularity the website name (domain name) and the content of the site becomes more valuable. 

You can invest in domain names (such as by buying a name and holding for value, then flipping it for a profit. Or you could buy a full website for cheap, fix it up with some content and resell it for a profit.  

The nice thing about this is it is far cheaper than traditional real estate. Domain names cost about $20 a year, and running a low-end website only costs a few hundred dollars per year. You could invest at your own speed and build up gradually. 

The downside is you do need some technical knowledge to do this effectively or need to pay someone to do it for you. This can be expensive if you aren’t careful. Also, a domain or website’s value is subjective and highly speculative. There is far greater value in real estate on average than a typical domain or website. It is also easier to deal with physical real estate and more demand in general.  

Investment Plan & the Importance of Perserverance

Whichever path you choose to take, it’s important to have a plan to invest in real estate regardless of whether you have bad credit or a sterling credit rating. The key is perseverance. No one is going to believe in you more than yourself.

No sugar coating – it’s going to be tough to invest in real estate with bad credit. The plan should cover careful research, due diligence and risk management.  

Define your investment goals and objectives

Determine what you aim to achieve with your real estate investments. Are you looking for long-term rental income, fix-and-flip opportunities, or property appreciation? Clearly outlining your goals will help shape your investment strategy. 

Conduct Extensive Research 

You need to thoroughly research the real estate market and specific properties you are interested in. Analyze factors such as location, market trends, rental demand, property condition, and potential growth. A well-informed investment decision can help mitigate risks associated with bad credit. 

Seek Professional Guidance 

Consult with professionals such as real estate agents, attorneys, and property inspectors. Their expertise can help you assess property value, negotiate favorable terms, ensure legal compliance, and identify potential risks. 

Analyze Cash Flow 

Carefully analyze the potential cash flow of your real estate investment. Consider expenses such as property taxes, maintenance costs, insurance, and vacancies. Ensure that the rental income and other revenue sources are sufficient to cover these expenses and generate a positive cash flow. 

Diversify Your Portfolio 

To minimize risks, consider diversifying your real estate investment portfolio. Spread your investments across different property types, locations, and markets. This strategy helps mitigate the impact of potential losses on individual properties and provides opportunities for growth. 

Plan for Contingencies 

Prepare for unexpected situations by setting aside funds for contingencies. This can help cover unforeseen expenses, property repairs, or periods of vacancy. Having a financial buffer provides a safety net and reduces the impact of potential setbacks. 

Maintain Regular Communication 

Stay in close communication with tenants, property managers (if applicable), and service providers. You need to promptly address maintenance issues, respond to tenant concerns, and ensure that rent payments are received on time. Good communication fosters positive tenant relationships and reduces potential risks. 

Stay Updated on Market Trends 

Keep yourself informed about the real estate market and industry trends. Stay updated on changes in regulations, property values, rental rates, and economic factors that may impact your investments. Being aware of market dynamics helps you make informed decisions and adapt to changing circumstances. 

Regularly Evaluate and Adjust Strategies 

Continuously evaluate the performance of your real estate investments. Monitor cash flow, property appreciation, and market conditions. If necessary, adjust your strategies, explore refinancing options, or consider selling underperforming properties to optimize your portfolio. 

By conducting thorough due diligence and implementing effective risk management strategies, you can navigate the challenges of investing in real estate with bad credit. Remember to stay proactive, seek professional advice when needed, and adapt your strategies based on market conditions. 

Repairing Your Bad Credit 

There are countless articles on this site to repair poor credit, however, here are a few high level and general tips to help. Fixing your bad credit can help invest in real estate more readily and easily in the future.

  1. Pay off debts and reduce outstanding balances: Focus on paying off outstanding debts and reducing credit card balances. This demonstrates responsible financial behavior and can positively impact your credit score. 
  2. Dispute errors on your credit report: Review your credit report for any errors or inaccuracies. Dispute and rectify these errors promptly to ensure your credit report accurately reflects your financial situation. 
  3. Establish positive payment history: Consistently make payments on-time for all your financial obligations, including credit cards, loans, and utilities. Building a track record of timely payments shows lenders your improved financial responsibility. 
  4. Responsible credit management: Use credit wisely and avoid maxing out your credit limits. Maintain low credit utilization ratios and only take on new credit when necessary. 

The Wrap Up 

How are you feeling about your chances to invest in real estate with bad credit now that we have uncovered some avenues you can try? From alternative financing to creative ways to invest in real estate, you do have some options open to you.  

Many of the options are free or low cost for you to get started today. For example, investing in REITs and crowdfunding platforms are rather inexpensive and require no overhead or extensive research. But investing in them still gets you access to the benefits of the real estate market.

How did I do? Let me know if you see any strategies I may have missed! 

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